Apache Corporation (NYSE:APA) announced the purchase of a private oil and gas company with an extensive acreage in the Anadarko Basin in Texas and Oklahoma. This purchase has increased the company's bet on the future value of numerous oil and gas plays in this area. (To know more about oil and gas, read Oil And Gas Industry Primer.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.
The Purchase
Apache Corporation is buying Cordillera Energy Partners III LLC for total consideration of $2.85 billion. The company will pay $2.25 billion in cash and issue 6.273 million shares of its common stock with an estimated value of $600 million. Apache expects the acquisition to close early in the second quarter of 2012.

Cordillera Energy Partners III LLC was formed by Cordillera Energy Partners in 2007 with funding from EnCap Investments and several other institutional investors. This was the third energy company formed by Cordillera Energy Partners.

Cordillera Energy Partners I LLC was started in 2000, and sold in 2003 to Patina Oil and Gas, while Cordillera Energy Partners II LLC was started in 2004 and sold in pieces in 2008 to Forest Oil (NYSE:FST) and Devon Energy (NYSE:DVN).

What is Apache Corporation Getting?
Apache Corporation is picking up 254,000 net acres in the Anadarko Basin, increasing the company's total acreage here to 487,000 net acres. The company also adds production of 18,000 barrels of oil equivalent (BOE) per day, with approximately 53% of this production composed of oil and natural gas liquids. The properties have 88 million BOE of proved reserves and Apache Corporation estimates that the proved, probable and possible reserves total 390 million BOE.

The company has access to a smorgasbord of productive hydrocarbon formations across the acquired acreage, including the Granite Wash, Tonkawa, Cleveland and Marmaton plays. The liquids content of these plays in the area where Apache Corporation operates ranges from 48 to 74%.

The oil and gas giant estimates that returns from these four plays will be between 25 and 42%, and expects to use horizontal drilling here over the next year to increase production to 70,000 BOE per day in the company's central region by the end of 2012.

Other Operators
The Granite Wash and other plays in the Anadarko Basin have attracted many operators over the last few years. Linn Energy (Nasdaq:LINE) has accumulated extensive acreage exposed to this play and has allocated 53% of its $880 million capital budget towards the Granite Wash. This will cover the drilling of 75 horizontal wells in 2012.

QEP Resources (NYSE:QEP) also likes the Granite Wash and has acreage in Texas exposed to this play. The company estimates its resource potential here at 103 Bcfe.

The Bottom Line
Apache Corporation is not afraid to make acquisitions that fits the company's strategic outlook and has found another candidate in Cordillera Energy Partners III LLC. The company's track record indicates that this one will be successful like previous purchases. (For additional reading, check out A Guide To Investing In Oil Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing

    Build a Retirement Portfolio for a Different World

    When it comes to retirement rules of thumb, the financial industry is experiencing new guidelines and the new rules for navigating retirement.
  2. Forex Strategies

    Two Great Currencies To Profit From Oil Volatility

    U.S. dollar crosses with Canadian and Australian dollars offer easy access to crude oil trends due to their tight correlation with energy futures.
  3. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  4. Fundamental Analysis

    10 Major Companies Tied to the Apple Supply Chain

    Apple has one of the best supply-chain models. Here are some of the top businesses involved, and the benefits and challenges for all.
  5. Markets

    The 5 Biggest Chinese Natural Gas Companies

    Read about the top five Chinese natural gas companies as measured by gas production volume and learn a little more about their business operations.
  6. Economics

    Who Wins With Low Energy Prices? 

    Low oil prices are here to stay for some time. Which economies will benefit or lose from the low oil price regime?
  7. Options & Futures

    Analyzing The 5 Most Liquid Commodity Futures

    Crude oil leads the pack as the most liquid commodity futures market, followed by corn and natural gas.
  8. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  9. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI US 1000

    Find out about the PowerShares FTSE RAFI U.S. 1000 ETF, and explore detailed analysis of the fund that invests in undervalued stocks.
  10. Options & Futures

    Use Options to Hedge Against Iron Ore Downslide

    Using iron ore options is a way to take advantage of a current downslide in iron ore prices, whether for producers or traders.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!